Key Investment Highlights
 

1. Boku Inc (LON: BOKU) is a provider of billing services and mobile identity solutions to carriers and merchants globally.

2. BOKU delivers a wide range of effective and innovative solutions and services at a lower unit cost, and around 19 million end-users made the first transaction using Boku in FY2019.

3. The Company has been closely working with many leading companies such as Google, Apple, T Mobile, O2, AT&T, Uber, Verizon, Uber, Discover, Western Union, Square, BNP Paribas and FinServ etc.

4. BOKU has over 3 billion potential users with more than USD 6 billion payment volume annually and 24 million active users monthly.

5. The Group has a wide global reach with 60 markets processing transactions for more than 160 carrier connections and is working with over 200 merchant partners.

6. BOKU’s carrier billing platform is identified as the most accessible method for making digital payments globally and mobile identity solution business helps in protecting its customers from synthetic identities, compromised numbers, and account takeovers for better user experience.

7. The Group has reported strong revenue growth with a robust balance sheet position for the current period.

8. BOKU is actively seeking acquisitions and strategic partnerships globally to increase its product portfolio and bring new synergies to increase its market share.

9. Company’s platform has decent capacity capabilities as total transaction value processed was USD 5 billion in 2019, which reflects a 40 per cent increase against the 2018 data and nine-folds increase since 2016.

10. The Group has the potential to serve the largest customers since the substantial scale of business allows them to operate at low unit costs.

11. The Company is witnessing a positive impact of pandemic over payments division, while the pipeline in identity division is progressing well.

12. The Coronavirus led restrictions will generate additional demand for E-Wallets & Identity verification and holds substantial market opportunity.

 13. The share price is currently trading near its 52-week low, which makes an excellent opportunity to buy this growth stock.
 

Boku Inc (LON: BOKU) – Benefitting from COVID-led Restrictions to Perform Resiliently 

Boku Inc is a provider of carrier commerce and mobile identity solutions. Its technology platform provides a solution related to identity, sales systems, and billing. It is connected to over 190 mobile network operators globally. It verifies the identity of the user, executes payments and simply mobile interaction between digital organizations and consumers. Its platform served over 815 million transactions in 2019 and thus, contributed USD 5 billion to the digital economy. The Company was foundedin 2009, and presently, its platform is used in more than 59 countries. It is listed on FTSE AIM All-Share Index and was admitted to the LSE (London Stock Exchange) on 20^th November 2017. In April 2020, the Group has added 2 million new users. Moreover, the Boku’s identity division was formed in 2019, resultant from the acquisition of Danal, Inc.


(Source: Company Website)

Key Fundamental Statistics



Segments at a Glance

Operationally, the Company operates through two divisions - Payments and Identity. The payment division contributed around 86 per cent in revenue in FY2019.

Geographically, the business is split into three segments, namely - Americas, APAC and EMEA.

Progress of Non-Financial Key Performance Indicators 

2019 was a strong year from a both financial and operational perspective as there was a significant increase in various metrics such as identity billable transaction grew by 45 per cent and total payment volume reached USD 5 billion from USD 3.6 billion in FY2018.


 (Source: Annual Report, Company Website)


Significant Developments of 2020
 

1. 18^th March 2020: The Group announced the extension of the partnership with Pearl Abyss Corp regarding services related to Direct Carrier Billing and eWallet payment.

2. 3^rd March 2020:The Company reported an increase in Total Payment Volumes during January to February period by 30 per cent to USD 966 million against the corresponding period of the last year.

3. 24^th February 2020:Boku announced an agreement with AWA Co. Ltd for growing the subscriber base across mobile device and desktop.
 

Top Shareholders Statistics

 

Financial Highlights – Improved Financial Performance in FY2019 (31^st December 2019)

    
(Source: Annual Report, Company Website)
 

1. For the financial year ending 31^st December 2019, due to strong revenue growth from payments business for the period, the revenue increased by 42 per cent to USD 50.1 million as against USD 35.3 million in FY2018.

2. The Group’s adjusted EBITDA increased by 17 per cent to USD 7.4 million in the financial year 2019 versus an adjusted EBITDA of USD 6.3 million in FY2018.

3. The gross profit stood at USD 44,585 thousand in FY2019 versus USD 32,763 thousand in FY2018, while the operating loss declined to USD 884 thousand in FY2019 from an operating loss of USD 2,416 thousand in the financial year 2018.

4. The PAT (Profit after tax) attributable to shareholders stood at USD 355 thousand in FY2019 versus a LAT (loss after tax) attributable to shareholders of USD 4,333 thousand in FY2018, driven by increased revenue and adjusted EBITDA.

5. The cash balance as at 31^st December 2019 stood at USD 35.6 million versus USD 32.3 million as on 31^st December 2018.
 

Financial Ratios – Decent Liquidity Position versus FY2018 Data

 

The reported Gross Margin stood at 88.9 per cent for the financial year 2019 and was significantly higher than the industry median. The Net Margin for the financial year 2019 stood at 0.7 per cent versus a negative net margin of 12.3 per cent in FY2018. The Return on Equity stood at 0.8 per cent for the financial year 2019 and was higher than the last year ROE of negative 15.8 per cent. On the liquidity front, Boku Inc’s current ratio stood at 1.09x and was lower against theindustry median but remained higher versus last year data. On leverage front, the debt-equity ratio of Boku Inc’s was 0.09x, which was significantly lower as compared to the industry median.

Share Price Performance Analysis


Daily Chart as on 26^th May 2020, before the market close (Source: Refinitiv, Thomson Reuters) 

On May 26, 2020, at the time of writing (before the market close, at 9:29 AM GMT+1), Boku Inc shares were trading at GBX 84.50, down by 1.17 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 150.00/GBX 48.00.

Bullish Technical Indicator

From the technical standpoint, its shares were trading well above its short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology

Method 1 – Price to Earnings Approach (NTM)



To compare Boku Inc with its peers, Price/Earnings multiple has been used. The peers are Eagle Eye Solutions Group Plc (NTM Price/Earnings was 178.81), GB Group Plc (NTM Price/Earnings was 51.12), Eckoh Plc (NTM Price/Earnings was 31.45), Edenred SA (NTM Price/Earnings was 29.71) and Equiniti Group Plc (NTM Price/Earnings was 9.86). The Average of Price/Earnings (NTM) of the company’s peers was 60x (approx.).

Method 2 – Price to Cash Flow (NTM) Approach
 


To compare Boku Inc with its peers, Price/Cash Flow multiple has been used. The peers are GB Group Plc(NTM Price/Cash Flow was 43.71), Network International Holdings Plc(NTM Price/Cash Flow was 26.81), Nexi SpA (NTM Price/Cash Flow was 25.76), Eckoh Plc (NTM Price/Cash Flow was 22.24) and Nixu Oyj (NTM Price/Cash Flow was 22.00). The Average of Price/Cash Flow (NTM) of the company’s peers was 28.10x (approx.).

Boku Inc Vs FTSE AIM 100 Index (5 years)


(Source: Refinitiv, Thomson Reuters)

In the last five years, Boku Incshare price has delivered 14.97 per cent return as compared to negative 17.54 per cent return of FTSE-AIM 100 index, which shows that the stock has outperformed the index during the last five years.

Industry Outlook

As per the report of Fortune Business Insights (published in January 2020), the global mobile payment market is expected to reach approximately USD 6,884 billion by 2026 from around USD 925 billion in 2018, reflecting a compounding annual growth rate of 28.7 per cent during the forecast period. The increasing adoption of smartphones, digitalization in payments, and growing e-commerce business will work as strong catalysts to drive the future demand.

Growth Prospects and Risk Assessment

The Company keeps on launching new platforms and upgrade the old products and services related to digital payments and mobile identity solutions to become one of the market leaders in the support services sector. The new business in the pipeline will help the company to expand its operations and to gain additional market share.The Company, through its wide-ranging scope, had accelerated growth organically and through acquisitions & strategic partnerships. BOKU needs to invest heavily in innovation and system maintenance and, any failure to do so will impact the brand royalty and may affect the company’s financial performance. Excessive competition in the industry could affect the revenue and profitability of the Group. The Company operates inmultiple geographies, and its profits can be impacted negatively due to foreign exchange rate fluctuations. The Company’s performance is dependent on third-party vendors such as MNOs (mobile network operators) and SMS aggregators, and therefore, failure in payment from carriers to merchants can impose further peril to operating results. Cybersecurity threats, including data theft and hacking, can potentially harm the relationship with customers.

Business Outlook Scenario

The Company had shown good financial performance for the year 2019. Driven by decent growth from all the businesses in which the company operates, the company’s revenue and the profitability have improved for the current period. The Group aims to scale up the business operations and is consistently looking for further growth opportunities, both organically and through strategic acquisitions. The TPV (Total Payment Volumes) surged by 30 per cent to USD 966 million in January and February 2020 versus last year’s same period data. Despite an impact on all the business operations globally due to the coronavirus mayhem, Boku’s daily volume in February 2020 accelerated as compared to January 2020 data. The new users of Payments Platform of Boku have increased in January, February (Year 2020), driven by an increased use of gaming and streaming video services in various countries.

Boku has been performing resiliently with its digital nature of operations and not been materially impacted by the COVID-19 disruption. Moreover, social distancing scenario is yielding additional demand for the home entertainment, games, music and video. Even in 2020, the Group is expecting a continuous opportunity for E-Wallets and Identify verification vertical, which are driven by the Coronavirus imposed restrictions.


Source: Presentation, Company Website)

The Company also have many projects under pipeline, which will help them to achieve strong organic growth. BOKU is actively looking forward to acquisition opportunities with good funding capacity. The Group has made good progress in building Mobile Wallets, and transactions related to Identity billable surged by 45 per cent in FY2019. BOKU is looking to integrate recently acquired Danal Inc to its Identity business, which will result in improved performance and also increase the market share.

Over the course of 3 years (FY16 - FY19), the company’s revenue surged from USD 17.19 million in FY16 to USD 50.15 million in FY2019. Compounded annual growth rate (CAGR) stood at 42.89 per cent.
 
Based on the decent fundamental prospects and support from the valuation done using the above two methods, we have given a “Speculative Buy” recommendation at the current price of GBX 83.35 (as on 26^th May 2020, before the market close at 10:23 AM GMT+1) with lower double-digit upside potential based on 60.00x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.) and 28.10x NTM Price/Cash flow (approx.) on FY20E cash flow per share (approx.).
 
*All forecasted figures and Peer information have been taken Refinitiv, Thomson Reuters.

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